Why women are dropping out of work in India

India optimists invariably point to the much-discussed "demographic dividend" as a long-term structural factor, which should propel growth in the coming decades.

Studies suggest the demographic transition has been a big part of the growth miracle in the east-Asian economies and has been important for India since the advent of liberalisation in 1991.

However, for India to continue to reap the benefits of an ongoing demographic transition, it's vital that young people are able to find gainful employment.

There is an important and little-discussed gender element to this story.

Labour force participation of women remains woefully low in India, and this could be a major drag, not just on the empowerment of women but on the India growth story as well.

The statistics are shocking.

While male participation is high, female labour force participation (FLFP) has been dropping at an alarming rate.

According to data from National Sample Survey Organisation (NSSO), FLFP fell from a high point above 40 per cent in the early-to-mid 1990s to 29.4 per cent in 2004-05, 23.3 per cent in 2009-10 and 22.5 per cent in 2011-12.

Using different data, a report by the International Labour Organization (ILO) found that by 2009-10, India's FLFP was ranked 11th from the bottom out of 131 countries.

This low average masks considerable variation between rural and urban areas. In 2009-10, when overall FLFP was 23.3 per cent, it was 26.5 per cent in rural areas and incredibly low in urban areas at 14.6 per cent.

The economic boom unleashed by liberalisation has bypassed many of India's women.

Even worse: with rapid growth, it appears that women have been dropping out of the workforce in large numbers rather than joining up.

Why are women dropping out?

Research suggests it's driven by both the demand and supply side of the labour market. On the supply side, economists have long noted a U-shaped relationship between years of education and FLFP, not just in India but elsewhere.

At very low levels of education and income, women have no choice but to work to help support the family.

But as men in the family start earning more income, women tend to cut back their work in the formal economy to concentrate more on household activities.

It is the women in the middle - those who are literate but have at most some schooling or have only completed high school - who are squeezed both by the pressure to stay at home and by a lack of plentiful jobs that match their intermediate level of skills and education.

But then, at higher levels of education and income, women re-enter the workforce through well-paying jobs that match their education and skills.

Also, in some communities, notably upper caste Hindus and Muslims, there may be a stigma attached to women working outside the home - especially if it involves work considered 'menial' - which increases family and societal pressures to drop out if the men in the household are earning enough to foot the bills.

Economist Surjit Bhalla and sociologist Ravinder Kaur have argued that for a developing country such as India, the FLFP should be adjusted to include those women who are in school or university, since education is a substitute for employment and may yield dividends in the labour market down the road. With this adjustment, the modified FLFP would be above 30 per cent.

They are optimistic that with further economic and social change, India's FLFP will approach the international norm of 50-60 per cent in the next 10-15 years.

Research by economists Stephan Klasen and Janneke Pieters explores in detail what might explain the stagnant FLFP.

Focusing on urban India between 1987 and 2009, their statistical analysis in particular points to the impact of rising male education and income, which induces women to drop out of the labour force.

Klasen and Pieters show that FLFP is high among illiterate women (above 20 per cent), the lowest among literate women with some schooling or just high school (in the range of 10-15 per cent) , and highest among university graduates (around 25 per cent),which creates a U-shape.

They also point out that the demand for employment for high school and university graduates has not kept pace with the large supply of women looking for such work.

Frustrated at being unable to find work commensurate with their education and skills, many women choose to drop out of the workforce altogether, which contributes to a low and stagnating FLFP.

While the United Progressive Alliance government (UPA) at the Centre managed to maintain a high rate of gross domestic product (GDP) growth except in the past two years, its Achilles heel was that this was "jobless growth". Which means, under the UPA, GDP growth has been driven largely by increasing productivity and not employment.

So while it was a boom time for investors both domestic and foreign, and for the few people lucky enough to get those well-paying jobs, there wasn't the big increase in employment that would have pulled more people, especially women back into the workforce.

Even if the government's highly contested claim that it created 13.9 million jobs in the two years before January 2012 can be believed, contrast this with the paltry one to two million jobs they created in the preceding 2004-05 to 2009-10. And contrast this to the 60 million jobs created during the National Democratic Alliance's (NDA) tenure.

The irony is that while the UPA has delivered higher rates of GDP growth than the NDA, it was under the latter that job creation peaked. Tellingly, the share of manufacturing jobs in total employment rose from 11.1 per cent in 2000-01 to 12.2 per cent in 2005-6, but then fall back to 10.7 per cent in 2010-11.

While the model of jobless growth can work in rich countries, the idea that a relatively poor economy such as India can keep growing by squeezing more productivity out of an essentially unchanged number of workers never made much economic sense.

The jobless growth paradigm also carried the unintended consequence of depressing FLFP to record lows. Correcting this will be key to ensuring a demographic dividend rather than a social disaster in the making.